TIDMENQ
RNS Number : 2122Q
EnQuest PLC
17 February 2023
EnQuest PLC, 17 February 2023
Full year 2022 operations update and 2023 guidance
Record free cash flow drives c.$500 million reduction in debt;
capital structure reset with debt maturities extended to 2027
Unless otherwise stated, all figures are unaudited, on a
Business performance basis and are in US Dollars
EnQuest Chief Executive, Amjad Bseisu, commented :
"EnQuest delivered strong operational performance and continued
to exercise financial discipline, resulting in record free cash
flows of over $500 million in 2022. Our net debt has been reduced
to around $700 million, which has helped us to make excellent
progress towards our leverage target of 0.5x. Additionally, our
capital structure has been reset with debt maturities extended by
five years following the successful refinancing of our
facilities.
"EnQuest is proud to continue its role as a transition company,
and we have made good progress in reducing our emissions. We have
now reduced our UK emissions by c.40% from the 2018 benchmark,
significantly ahead of the UK's North Sea Transition Deal targets.
Additionally, we have made progress in advancing our new energy and
decarbonisation ambitions at the Sullom Voe Terminal. We have also
cemented our position as a leading decommissioning partner,
delivering one of the most productive campaigns seen in the UK
North Sea by decommissioning 24 wells at Heather and Thistle last
year.
"The performance of Magnus has improved with the successful
execution of the planned shutdown and delivery of our extensive
well programme, which also included the introduction of additional
gas production at Magnus.
"Looking ahead, changes to the UK Energy Profits Levy will
impact cash flow generation and have implications for our capital
allocation strategy and our UK production growth ambitions.
However, given the strong performance towards our leverage target,
returns to shareholders are becoming an increasingly important
consideration for our capital allocation decisions. In the
immediate future, we remain focused on deleveraging and intend to
prioritise organic investments with quick pay backs and accretive
M&A opportunities that allow us to leverage our operating
capability and tax loss position."
2022 performance
-- Average Group production was 47,259 Boepd, 6% higher than
2021
-- Kraken average gross production of 26,091 Boepd (net 18,394
Boepd) was above the top end of guidance, reflecting top quartile
FPSO uptime throughout the year
-- Magnus production of 12,641 Boepd reflects well integrity and
workover programmes pre-turnaround, and the completion of the North
West Magnus well in October
-- Golden Eagle production for the year was lower than expected
at 6,323 Boepd
-- Net production of 6,458 Boepd at PM8/Seligi reflected
delivery of an extensive infill drilling and well workover
programme during the year
-- Despite inflationary pressures, operating expenditure is
expected to be approximately $400 million, reflecting strong cost
discipline and favourable foreign exchange rates. Unit opex for
2022 is expected to be c.$23/Boe
-- Cash capital expenditures are expected to be approximately
$120 million, with cash decommissioning expenditure expected to be
approximately $60 million
-- Record free cash flow generation of more than $500 million,
reflecting strong production, cost control and capital
discipline
-- The Group's average realised oil price was around $103/bbl
pre-hedging and around $89/bbl, including the impacts of
hedging
-- In October 2022, EnQuest concluded a successful refinancing
of its capital structure with maturities extended to 2027
-- At 31 December 2022, cash drawings under the RBL were $400
million against a commitment of $500 million
-- In January 2023, an additional $78 million was repaid,
reducing cash drawn on this facility to $322 million
-- At 31 December 2022, the Group's net debt position was c.$717
million, down c.$505 million versus 31 December 2021, with cash and
available facilities of c.$349 million. As at 31 January 2023, the
Group's net debt position was further reduced to c.$698 million
2023 outlook
-- In response to the changes in the Energy Profits Levy
('EPL'), EnQuest has further optimised its capital programme for
2023, whereby Kraken drilling will be deferred. Cash capital
expenditure, excluding acquisitions, is expected to be
approximately $160 million.
-- The planned investment programme includes three infill wells
at Magnus and three new wells at Golden Eagle
-- Average net Group production is expected to be between 42,000
Boepd and 46,000 Boepd
-- Operating expenditure is expected to be approximately $425
million
-- Decommissioning expenditure is expected to be around $60
million, with the most significant activity being the continuation
of well plug and abandonment programmes at Heather and Thistle
-- For 2023, EnQuest has hedged c.5.3 MMbbls of oil,
predominantly through the combination of puts and costless collars.
The costless collars were largely entered into in 2021 and hedge
c.3.5 MMbbls with an average floor price of c.$57/bbl and an
average ceiling price of c.$75/bbl
-- For 2024, EnQuest has hedged c.2.9 MMbbls of oil with an
average floor price of c.$60/bbl. This has also been achieved
through the combination of puts and costless collars. Of the total
c.2.9 MMbbls hedged, costless collars make up c.1.5 MMbbls with an
average ceiling price of $92/bbl
Production details
Average daily 1 Jan 2022 1 Jan 2021
production on a to to
net working interest 31 Dec 2022 31 Dec 2021
basis (Boepd)
----------------------- ------------- -------------
(Boepd) (Boepd)
UK Upstream
- Magnus 12,641 11,870
- Kraken 18,394 21,964
- Golden Eagle
(1) 6,323 1,701
- Other Upstream
(2) 3,443 3,685
UK Upstream 40,801 39,220
UK Decommissioning
(3) - 167
------------- -------------
Total UK 40,801 39,387
------------- -------------
Total Malaysia 6,458 5,028
------------- -------------
Total EnQuest 47,259 44,415
------------- -------------
(1) Golden Eagle contribution for 2021 represented the period 22
October to 31 December, averaged over the 12 months to the end of
December
(2) Other Upstream: Scolty/Crathes, Greater Kittiwake Area and
Alba
(3) UK Decommissioning: the Dons
Magnus
Average production in 2022 was lower than expected at 12,641
Boepd, with performance impacted primarily by well integrity issues
and natural decline. The Group's well programme included the
successful completion of the North West Magnus well, which allowed
for additional gas export capacity, low-cost perforation work and
three wells being returned to service, with simultaneous workover
and drilling activities undertaken.
The planned annual shutdown was completed during the third
quarter and all major scopes were executed, with the primary focus
on compressor maintenance activities.
Kraken
Average gross production in 2022 was towards the top end of
guidance at 26,091 Boepd (18,394 Boepd net). Overall subsurface and
well performance has been good and the floating, production,
storage and offloading ('FPSO') vessel delivered top quartile
performance throughout 2022, with strong production efficiency of
93% and water injection efficiency of 93%.
The planned shutdown was optimised to facilitate single
processing train operations for one week of the two-week programme
of activities, with all key scopes executed ahead of schedule.
Golden Eagle
2022 net production was 6,323 Boepd. Production efficiency
remained strong at around 95% although production rates were lower
than forecast. EnQuest continues to work with the operator and the
joint venture partners to identify opportunities to maximise
rates.
The planned two well infill drilling campaign is ongoing, but
delayed. The first wellbore, having failed to locate
reservoir-quality sands, was plugged and the well was side-tracked
to the second target. Adverse weather conditions have resulted in
expected first production from this well being deferred into the
second quarter of 2023.
Other UK upstream assets
Production in 2022 averaged 3,443 Boepd, largely in line with
expectations reflecting strong uptime of 87% at the Greater
Kittiwake Area.
In response to adverse changes to the EPL, several operators are
reconsidering their capital programmes in the UK. In late 2022,
EnQuest increased its equity interest in Bressay to 100%, following
the withdrawal of Equinor and Harbour Energy. EnQuest is actively
exploring farm-down opportunities while continuing to progress
development planning of the asset.
Malaysian operations
Average production in Malaysia during 2022 was 6,458 Boepd, with
production efficiency of 87%. Production at PM8/Seligi was boosted
by a successful four-well workover campaign and the delivery of the
Group's first three horizontal wells, partially offset by natural
declines and compressor downtime.
Infrastructure and New Energy
The Sullom Voe Terminal ('SVT') and its related infrastructure
maintained safe and reliable performance throughout 2022,
delivering 100% export service availability.
During 2022, the Group continued to progress its plans to
repurpose the terminal site and connected offshore infrastructure,
in support of its ambitions to advance three world-scale
decarbonisation opportunities. First, within carbon capture and
storage ('CCS'), the Group has identified the opportunity to store
up to ten million tonnes of CO(2) per annum from emitters in UK,
Europe and beyond and has submitted two CCS licence applications
for areas close to EnQuest's existing infrastructure in the UK.
Second, the Group's electrification proposal represents a robust
and commercially attractive option to facilitate new asset
developments in the North Sea basin and to support UK energy
security. Third, EnQuest is also exploring opportunities to
aggregate and use the excess energy produced by the wind power from
onshore and offshore wind farms being developed near the Sullom Voe
site to produce green hydrogen and derivatives, which could help to
decarbonise a number of industries. We continue to maintain a
capital-light approach and believe we are well placed to deliver on
these ambitions in conjunction with potential strategic and
financial partners.
UK Decommissioning
A total of 24 wells at Heather and Thistle were plugged and
abandoned during 2022, with partial completion of a further four
wells by year end. Removal contracts for the Heather topsides and
jacket were awarded in September 2022 and January 2023,
respectively.
Liquidity and net debt
During the year, EnQuest successfully refinanced its debt
facilities, rebalancing the capital structure between secured and
unsecured debt and extending maturities until 2027. At 31 December
2022, cash drawings under the RBL were $400 million against a
commitment of $500 million with total net debt at $717 million,
down more than $500 million from the end of 2021 as a result of
record free cash flow generation in 2022.
Total cash and available facilities were $349 million, including
restricted funds and ring-fenced funds held in joint venture
operational accounts totalling $174 million.
During January 2023, the Group made a repayment of $78 million
reducing cash drawn under the RBL facility to $322 million at 31
January 2023 and ensuring the Group remains ahead of its
accelerated amortisation requirements following the revisions made
to EPL. Net debt as at 31 January 2023 was $698 million, with cash
and available facilities of $270 million.
EnQuest remains focused on its strong balance sheet and its
ongoing deleveraging strategy. As part of this financial policy,
the Group will continue to assess funding opportunities across
markets to optimise the capital structure and manage its debt
facilities.
Environmental, Social and Governance
The Group has continued to make excellent progress in reducing
its absolute Scope 1 and 2 emissions, with CO(2) equivalent
emissions reduced by around 20% since 2020, reflecting lower
flaring and lower fuel gas and diesel usage. Since 2018, UK Scope 1
and 2 emissions have reduced by more than 40%, which is
significantly ahead of the UK Government's North Sea Transition
Deal target of achieving a 10% reduction in Scope 1 and 2 CO(2)
equivalent emissions by 2025 and close to the 50% reduction
targeted by 2030.
The health, safety and wellbeing of our employees is our top
priority. In 2022, EnQuest achieved an upper quartile Lost Time
Incident ('LTI') frequency (1) rate. However, there was an increase
in the number of LTIs from 2021 for which intervention was
undertaken, emphasising increased focus on situational awareness
and dynamic risk assessment.
Effective succession planning remains a key focus area for the
Board, Governance and Nomination Committee and management. In
August, Jonathan Swinney stepped down from the Board as Chief
Financial Officer ('CFO') and Executive Director, with Salman
Malik, who had long been identified as a potential CFO successor,
succeeding him. In addition, following the Group's Annual General
Meeting in June, Philip Holland stepped down from the Board as part
of an orderly and planned succession process with Rani Koya
succeeding him, having joined the Board on 1 January 2022. In
December 2022, Gareth Penny was appointed to the Board as
Non-Executive Chairman, succeeding Martin Houston. Gareth is
currently the chairman of Ninety One Plc, a FTSE 250 financial
institution, having previously served on the board of Julius Baer
Group for 12 years.
The EnQuest Board has 33% female representation, which is shows
good progress towards the Women Leaders Review target of 40%, and
remains ahead of the Parker Review target with respect to minority
ethnic representation, with four minority ethnic board members.
(1) Lost Time Incident frequency represents the number of
incidents per million exposure hours worked (based on 12 hours for
offshore and eight hours for onshore)
2023 performance and outlook
Group net production averaged above 48,000 Boepd in January. For
the full year, the Group's net production is expected to be between
42,000 and 46,000 Boepd, including the drilling campaigns at Magnus
and Golden Eagle. Required maintenance activities are planned to be
executed during two separate ten-day periods of single train
operations at Kraken, with further extensive shutdowns at each of
Magnus and GKA.
At current foreign exchange rates and oil prices, operating
expenditures are expected to be approximately $425 million. The
increase versus 2022 is largely due to inflationary pressures and
phasing of activities.
Cash capital expenditure is expected to be around $160 million.
The Group plans to execute a three-well drilling campaign at Magnus
and complete the 2022 drilling campaign at Golden Eagle, where two
further platform wells are expected to be drilled, commencing later
in the year, subject to joint venture approval. The impact of the
EPL on cash available for investment has resulted in the Group
prioritising quick-payback opportunities at Magnus and deferring
spend on Kraken drilling. EnQuest continues to assess a potential
drilling programme in Malaysia.
Abandonment expense is expected to total approximately $60
million, primarily reflecting ongoing well P&A decommissioning
programmes at the Heather/Broom and Thistle/Deveron fields.
For 2023, EnQuest has hedged c.5.3 MMbbls of oil, predominantly
through the combination of puts and costless collars. The costless
collars were largely put in place in 2021 and hedge c.3.5 MMbbls
with an average floor price of $57/bbl and an average ceiling price
of $75/bbl. For 2024, EnQuest has hedged c.2.9 MMbbls of oil with
an average floor price of c.$60/bbl. This has also been achieved
through the combination of puts and costless collars. Of the total
c.2.9 MMbbls hedged, costless collars make up c.1.5 MMbbls with an
average ceiling price of $92/bbl.
EnQuest expects to announce its 2022 full year results on 23
March 2023.
Ends
For further information please contact:
EnQuest PLC Tel: +44 (0)20 7925
4900
Amjad Bseisu (Chief Executive)
Salman Malik (Chief Financial Officer)
Ian Wood (Head of Communications & Investor
Relations)
Craig Baxter (Senior Investor Relations &
Communications Manager)
Tulchan Communications Tel: +44 (0)20 7353
4200
Martin Robinson
Martin Pengelley
Harry Cameron
Notes to editors
ENQUEST
EnQuest is providing creative solutions through the energy
transition. As an independent production and development company
with operations in the UK North Sea and Malaysia, the Group's
strategic vision is to be the operator of choice for maturing and
underdeveloped hydrocarbon assets by focusing on operational
excellence, differential capability, value enhancement and
financial discipline.
EnQuest PLC trades on both the London Stock Exchange and the
NASDAQ OMX Stockholm.
Please visit our website www.enquest.com for more information on
our global operations.
Forward-looking statements: This announcement may contain
certain forward-looking statements with respect to EnQuest's
expectations and plans, strategy, management's objectives, future
performance, production, reserves, costs, revenues and other trend
information. These statements and forecasts involve risk and
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circumstances that may occur in the future. There are a number of
factors which could cause actual results or developments to differ
materially from those expressed or implied by these forward-looking
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reference to forecast price changes, economic conditions and the
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